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Sunday, December 27, 2009

Stock Index Chart Patterns - FTSE 100, CAC 40, DAX - Dec 25, '09

FTSE 100 index chart

The bulls managed to shrug off the bear attack as the FTSE 100 index chart scaled a new high of 5402 on Christmas Eve. The index bounced off the 50 day EMA once again and made higher tops and bottoms on all four trading days of a holiday-truncated week.

Is there more steam left in this rally, or is it the bulls' last hurrah? The pathetic volumes point towards the latter. The technical indicators are looking lukewarm, with only the slow stochastic bouncing sharply off the 50% level to reach the overbought zone. The RSI is barely above the 50% level. The MFI is at its 50% level. The MACD is positive and above the signal line. But all four indicators are displaying negative divergences as they failed to make new highs.

Looks like the bulls managed to trap the bears into covering their shorts. All three EMAs are moving up, so this rally on weak fundamentals and weaker volumes looks set to continue for a while longer.

DAX index chart

The DAX index chart pattern continued its bullish fervour last week, making another new high of 5988 on Dec 23 '09. Like the FTSE 100, the higher tops and higher bottoms formation during the week was on very low volumes.

The slow stochastic continued to move up in the overbought zone, but the other three technical indicators are showing negative divergences. The RSI moved sideways above the 50% level. The MFI is finding it difficult to move above its 50% level. The MACD is rising in the positive zone and is above the signal line.

All three EMAs are moving up and the index is well above them. A short correction may be in the offing. But the bull rally is under no immediate threat.

CAC 40 index chart

The CAC 40 index chart also joined the bull party and made a new high of 3931 on Dec 23 '09. The French index, like its European neighbours, made the new high on much reduced volumes.

The index is well above the three EMAs, which are all moving up. The bulls may continue their domination for a while longer, but be prepared for a quick correction.

The slow stochastic is moving up in the overbought zone. The MACD is rising in the positive zone and is above the signal line. The RSI is moving sideways above the 50% level. So is the MFI. The negative divergences in the MACD, RSI and MFI are also pointing towards a correction.

Bottomline? A Santa Claus rally seems to be unfolding in the European index chart patterns. Remember that the bull rally is almost 10 months old. New entry is not recommended at this point. Existing holders can set trailing stop losses and ride the rest of the rally, or book partial profits.